By Swenja Surminski, Member of the Adaptation Committee and David Style, Senior Analyst – Adaptation
Supply chains are the arteries of our economic system, spanning across continents and sectors, often complex and highly specialized. Built with a focus on speed and efficiency, supply chains are very vulnerable to any type of disruption. Recent events, such as Covid and the Russian invasion of Ukraine have brought this to the fore, with significant impacts on people and the economy, causing rises in food and energy prices and disruption to the production and transportation of a wide range of intermediate inputs or final goods.
A growing challenge for global supply chains are the physical impacts of a changing climate, with floods, heatwaves, droughts and windstorms triggering cascading impacts that can be felt locally, but also far away from where the actual event is taking place. This year record low river levels in Europe, China and the US in the summer of 2022 have caused factories and agriculture to reduce production, cargo ships to carry smaller loads and the risks of power blackouts for millions of people.
All three of the UK Climate Change Risk Assessments (CCRA) including the most recent one, have highlighted the need for more action to increase the resilience of the UK’s domestic and international supply chains. Given the growing urgency, the CCC has written a new supply chain briefing to summarise the evidence in this area and identify actions for government and businesses.
The CCC’s evidence shows that we are already experiencing disruption to domestic supply chains from floods, droughts, high temperatures and other extreme weather in the UK. A recent example of this was the impact of unusually poor weather conditions in 2020 on production of wheat, a key part of food supply chains. Very wet weather, followed by very dry weather, meant wheat yields were the lowest since 1981 and over £500m lower in value than the average for the previous four years. In a recent survey from the Business Continuity Institute 42% of all respondents identified that extreme weather events had resulted in supply chain disruptions.
The UK is also exposed to extreme weather and climate risks around the world through international supply chains. Geographic concentrations of key inputs and products create the potential for greater impacts from weather-related disruption. These can be things like critical minerals or semiconductor chips which are currently produced mainly in East Asia, or everyday items like tea and coffee which are mainly produced in Asia and South America, and in the case of tea, many exports are from a few countries like Kenya and Sri Lanka.
As highlighted by the recent UK CCRA3, climate change is increasing the risks of disruption. Global temperature will keep rising until global CO2 emissions reach Net Zero, and some aspects of the climate (such as sea-levels) will keep changing for centuries. This inevitable climate change means that exposure of UK supply chains to climate hazards in the UK and internationally is set to increase. Some parts of supply chains will come under particular stress. For example, supply chains which involve occupations or sectors requiring significant amounts of outdoor labour, such as agriculture and construction, may be particularly impacted by more frequent and extreme heatwaves.
The good news is that there is a lot that both businesses and government can do to reduce our vulnerability to these risks now and in the future. The CCC has identified a range of adaptation actions that can increase supply chain resilience. One thing that is key for both is to learn lessons from the disruption of recent years; in particular, that we cannot think about these different supply chain risks in isolation. Efforts to increase resilience need to consider the potential for interacting or cascading risks. They must also incorporate climate risks at the same time as other trends, such as the Net Zero transition, increased digitalisation and changing trading patterns.
There are a range of actions and strategies that businesses can use to make their supply chains more resilient, including to the risks from climate change. Some of these actions may be within a businesses’ direct control, for example flood proofing a grain silo, others may be outside of their direct control and will require working with their suppliers, service providers and infrastructure operators. Examples of business actions include collaborative planning and control with suppliers and infrastructure operators; diversifying the geographic location of suppliers, which will spread supply disruption risk across more regions, and diversifying supply routes and transportation modes, which will spread supply disruption risk across different parts of the transport system. Larger businesses have a particularly important role to play given their ability to influence the actions of their suppliers and ensure the health and resilience of the places their suppliers are located in.
As documented in the CCC’s Adaptation progress reports, government has an essential role to enable, support and build capacity. Actions for government to make supply chains resilient fall under several key responsibilities and extend across multiple government departments. These key responsibilities include stress testing of supply chains, international and trade policy, effective reporting of risk and adaptation by organisations, information provision and promoting procurement which incorporates resilience. If delivered alongside other adaptation in the UK this will not only protect people and the UK economy from the impacts of future disruptions but will give the UK a comparative advantage, as a more attractive destination for businesses to locate parts of their supply chain.
Resilient supply chains are a critical part of delivering a well-adapted UK. If government and businesses take action now, we can all benefit from a more secure supply of food, energy and other goods and services that we depend on.